DAIRY firm Arla Foods has posted results in line with revised expectations after an earlier warning that rising oil prices would hit profits.

The UK's largest supplier of butter and milk, which has a dairy processing plant in Northallerton, said strong performances from Lurpak and Anchor helped it meet its scaled-back underlying pre-tax profits target of £44.5m in the year to September 30.

Arla, which also sold more milk to supermarkets than ever before, dashed City hopes in August that profits could reach nearly £50m when it said higher oil and utility prices had reduced margins.

Oil prices matter to Arla because they determine how much the company pays for its packaging and fuel, while parallel rises in electricity and gas push up the cost of powering its machines.

Chief executive Tim Smith said yesterday: "Regrettably we experienced record levels of cost inflation during the year, where we were particularly exposed to the impact of the changes to oil prices on packaging, processing and distributing costs."

Despite the soaring costs - which saw the price of plastic used in bottles to supply supermarkets rise by £200 a ton to £850 - the underlying pre-tax profits of £44.5m were 5.2 per cent higher than last year's figure of £43.2m

Once exceptional items such as depot restructuring and rationalisation costs from the 2003 merger of Arla and Express Dairies were taken into account, pre-tax profits were £14.7m compared with losses of £4.2m last year.